Natural gas futures dropped in New York for the first time in three days as weather forecasts for late December and early January turned warmer.

Gas slid as much as 3.7 percent after Commodity Weather Group LLC in Bethesda, Maryland, predicted mostly normal temperatures in the eastern half of the U.S. from Dec. 29 through Jan. 2. Yesterday’s outlook was for colder-than-average weather in those regions.

“The weather forecast is becoming as volatile as the price,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “The temperature outlook became much less supportive and the market just started selling.”

Natural gas for January delivery fell 11.3 cents, or 3.3 percent, to $3.304 per million British thermal units at 9:21 a.m. on the New York Mercantile Exchange. The futures are up 11 percent this year, heading for the first annual gain since 2007. Prices declined to $3.261 per million Btu in intraday trading on Dec. 14, the lowest since Sept. 28.

Inventory Report

A department report scheduled for release tomorrow will show gas inventories fell by 76 billion cubic feet last week to 3.73 trillion, according to the median of 13 analyst estimates compiled by Bloomberg. The five-year average withdrawal for the period is 144 billion. Last year, supplies declined by 100 billion during the week.

Supplies were 8 percent above the five-year average, compared with 4.6 percent the previous week. The gas inventory surplus to the average has declined from a six-year high of 61 percent in March, department data show.

This year will probably overtake 1998 to become the warmest year on record in the U.S., the Climatic Data Center said Dec. 6 in a monthly climate report. The first 11 months were the warmest start to any year in the contiguous states since the nation began keeping records in 1895, the center said.

Output Forecast

The U.S. raised its forecast for natural gas output in 2012 by 0.6 percent in a report Dec. 11.

Marketed gas production will average 69.22 billion cubic feet a day this year, up from 68.84 billion estimated in November, the Energy Department said in its monthly Short-Term Energy Outlook. Output may rise 0.5 percent in 2013 to 69.59 billion a day, department estimates show.

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 83 percent of its energy needs in the first eight months of the year, department data show. If the trend goes on through 2012, it will be the highest level of self-sufficiency since 1991.

The New York Mercantile Exhange at 628 Broadway between Bleecker and Houston Streets in the NoHo section of Manhattan, New York City was built in 1882 and designed by Herman J. Schwarzmann with Buchman & Deisler. (Source: AIA4 Guide to NYC (4th ed.)) (Photo credit: Wikipedia)

October 26

Natural gas capped its first weekly drop since September as stockpiles approached a record after a bigger-than-normal storage injection yesterday.

The futures declined 1 percent after Energy Department data showed inventories rose 67 billion cubic feet to 3.843 trillion in the week ended Oct. 19. The five-year average gain for that period is 65 billion. Supplies may climb to an all-time high of 3.903 trillion cubic feet by Oct. 31, department estimates show.

“We’re still oversupplied,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “Storage injections are going to pop higher in the next couple of weeks. The bloom is off the rose for this market.”

Natural gas for November delivery fell 3.4 cents to settle at $3.40 per million British thermal units on the New York Mercantile Exchange. The futures were down 6 percent this week, the first weekly drop since the seven days ended Sept. 21. Gas advanced to $3.648 per million Btu on Oct. 22, the highest intraday price since Dec. 2.

February $5.50 calls were the most active gas options in electronic trading. They were down 0.2 cent at 1.2 cents on volume of 2,663 contracts as of 3:18 p.m. Calls accounted for 69 percent of options volume.

Hurricane Sandy, currently off the coast of Florida, is expected to move north and come ashore just south of Delaware Bay on Oct. 30, according to the National Hurricane Center.

The storm will bring heavy rain and high winds, “which could knock out large areas of electricity,” Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said in a note to clients today.

Hurricane Sandy

Power producers account for about 36 percent of U.S. gas consumption, according to the Energy Department.

As of 2 p.m. New York time, Sandy’s top winds were 75 miles (121 kilometers) per hour, the Miami-based center said. It was about 430 miles south-southeast of Charleston, South Carolina, and moving north at 7 mph.

WSI Corp. in Andover, Massachusetts, predicted mostly normal weather across the continental U.S. from Nov. 5 through Nov. 9.

About 50 percent of U.S. households use gas for heating, according to the Energy Department.

Mild Weather

A lack of Pacific Ocean warming and of blocking patterns in the Atlantic will probably mean warmer-than-normal weather in the eastern U.S. for the next three months, said Todd Crawford, chief meteorologist at Weather Services International.

Temperatures in the East may be about 2 degrees Fahrenheit above normal from November through January, while the Northwest cools, according to a seasonal forecast Oct. 22 from the Andover, Massachusetts-based company.

U.S. natural gas production in 2012 will average an all- time high of 68.85 billion cubic feet a day, up 4 percent from last year, the Energy Department said Oct. 10 in its monthly Short-Term Energy Outlook.

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 83 percent of its energy needs in the first six months of the year, department data show. If the trend goes on through 2012, it will be the highest level of self-sufficiency since 1991.

The number of rigs drilling for natural gas in the U.S. fell by 11 to 416 this week the lowest level since June 1999, according to data released today by Baker Hughes Inc. in Houston. The rig count has dropped 49 percent this year.

Gas futures volume in electronic trading on the Nymex was 230,526 as of 3:22 p.m., compared with the three-month average of 394,000. Volume was 402,921 yesterday. Open interest was 1.2 million contracts. The three-month average is 1.12 million.

The exchange has a one-business-day delay in reporting full volume and open interest data.

Bloomberg and others today are taking a big look at natural
gas and the thought that at this price, it has to be at or
near a bottom…right? Take a look above at those forward
natural gas prices for the coming winter and it shows that
there might be hope.

That spread between current and
forward prices is close to a record divergence.Bloomberg writes, “U.S. natural gas for delivery this fall istrading at a record premium, signaling the fuel may bepoised to rebound from its worst quarter in two years because
of production cuts and rising demand from power
plants.”
Bloomberg continues, “Prices have tumbled 31 percent
this year as the fourth- warmest winter on record crimped
demand and output from shale formations increased. Energy
companies including ConocoPhillips and EnCana Corp.(ECA) have responded with production cuts, reducing thechances that supplies will overwhelm storage before winter.
Demand for gas from power plants will climb 16 percent in2012, according to the Energy Department.”
Bloomberg adds, “Natural gas prices may rebound as
production growth slows and colder weather returns later in
the year,” Goldman Sachs said in a report this week. The
2011-2012 winter was the warmest since 2000 in the contiguous
U.S., according to the National Climatic Data Center in
Asheville, North Carolina.
About 51 percent of U.S. households use gas for heating,
Energy Department data shows.”

Coal may well see itself replaced by gas forboth environmental and price reasons.
Bloomberg points out, “American Electric Power Co.,
the biggest U.S. producer of coal-fueled electricity, said
April 20 that it used 62 percent more gas in the first quarter
than a year earlier because of low prices.Southern Co. (SO), once the largest U.S. consumer of
coal, expects to generate 57 percent of its power from
natural gas by 2020 if low prices and new environmental
rules remain in effect, Thomas Fanning, Southern’s
chairman and chief executive officer, said during an interview
today.”Is this an opportunity as there is a very long list of
gassy stocks that are at two, three or even five and sixfor-
one sales.
The chart of Delphi Energy shows you just one more
mainly gas stock, a long-time favorite of Josef
Schachter…but hey, there aren’t any gas stocks enjoying life.